April WTI crude oil (CLJ24) on Friday closed down -0.22 (-0.27%), and Apr RBOB gasoline (RBJ24) closed up +1.75 (+0.65%).
Crude oil and gasoline prices on Friday settled mixed, with gasoline climbing to a 5-3/4 month high. Friday's rally in the dollar index to a 1-week high was bearish for energy prices. However, gasoline has support after the Ukrainian drone strikes on three Russian refineries earlier this week halted about 125,000 bpd of Russian fuel exports. Crude also has carryover support from Thursday when the IEA said the oil markets face a supply deficit for the remainder of this year due to OPEC+ production cuts.
Friday's US economic news was mixed for energy demand and crude prices. On the bearish side, the Mar Empire manufacturing survey of general business conditions index fell -18.5 to -20.9, weaker than expectations of -7.0. Also, the University of Michigan's US Mar consumer sentiment index unexpectedly fell -0.4 to 76.5, weaker than expectations of an increase to 79.7. On the positive side, Feb manufacturing production rose +0.8% m/m, stronger than expectations of +0.3% m/m and the biggest increase in 10 months.
The International Energy Agency (IEA) Thursday forecasted that the global oil markets will be in a deficit through the end of 2024 if OPEC+ maintains its current production cuts, although the balance would turn to a surplus if OPEC+ starts pumping more oil. OPEC+ will meet on June 1 to decide on production levels for the second half of 2024. The IEA also raised its forecast for global crude oil demand growth in 2024 by 110,000 bpd to 1.3 million bpd due to a stronger US economic outlook and the increased fuel needed for ships to take longer routes to avoid Houthi attacks in the Red Sea.
Oil prices were undercut Tuesday after the US DOE Energy Information Administration (EIA), in its Short-Term Energy Outlook, forecasted that US crude oil production in 2024 will rise +2.0% y/y to 13.19 million bpd, +0.7% higher than the previous projection of 13.10 million bpd. The EIA is predicting that US oil production in 2025 will increase by +3.5% y/y to 13.65 million bpd, 1.2% higher than the previous forecast. Higher US production would at least partially offset OPEC+ production cuts. The EIA is forecasting a global oil deficit of 260,000 bpd this year, but a surplus of 360,000 bpd in 2025.
OPEC, in its monthly report released on Tuesday, kept its forecasts roughly unchanged for oil supply and demand in 2023 and 2024. OPEC is still forecasting that world oil consumption in 2024 will increase by a "robust" 2.2 million bpd (+2.2%) to a record 104.5 million bpd. OPEC noted in its report that OPEC+ has not met its agreed-upon production cut due in part to overproduction by Iraq.
OPEC+ announced on March 3 that it would extend its current crude production cuts of about 2 million bpd until the end of June. The group said its crude production cuts will be "returned gradually subject to market conditions" after the second quarter. However, OPEC Feb crude production rose +110,000 bpd to 26.680 million bpd, a bearish factor for oil prices as Iraq and UAE continue to pump above their production quotas.
Also, Vortexa said on March 4 that OPEC+ compliance with crude production cuts is still "questionable." Vortexa said that Russian oil exports were about 500,000 bpd above the OPEC+ commitments, and there are "little indications that Russia is actively cutting either crude production or exports." Bloomberg reported on Tuesday that Russia's seaborne crude oil exports in the week ended March 10 rose +590,000 bpd and that Russia's flows were 420,000 bpd above Russia's pledge.
Crude prices have underlying support from the Israel-Hamas war and concern that all-out war might spread to Lebanon. Hezbollah and Israel have traded fire almost daily since the Israel-Hamas war erupted on October 7. Also, the US and UK have engaged in airstrikes against Houthi rebels in Yemen in retaliation for Houthi attacks on commercial shipping in the Red Sea. Attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.
A decline in crude in floating storage is bullish for prices. Monday's weekly data from Vortexa showed that the amount of crude oil held worldwide on tankers that have been stationary for at least a week fell -8.1% w/w to 69.01 million bbl as of March 1.
Wednesday's EIA report showed that (1) US crude oil inventories as of March 8 were -2.6% below the seasonal 5-year average, (2) gasoline inventories were -2.6% below the seasonal 5-year average, and (3) distillate inventories were -7.3% below the 5-year seasonal average. US crude oil production in the week ending March 8 fell -0.8% w/w to 13.1 million bpd, below the recent record high of 13.3 million bpd.
Baker Hughes reported Friday that active US oil rigs in the week ended March 15 rose by +6 rigs to a 6-month high of 510 rigs, moderately above the 2-year low of 494 rigs posted on November 10. The number of US oil rigs has fallen over the past year from the 3-3/4 year high of 627 rigs posted in December 2022.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
